Environmental considerations in hydroelectric licensing: California v. FERC (Dynamo Pond).

• Author: Roth, Elizabeth Bogley
• Position: Federal Energy Regulatory Commission - 1992 Ninth Circuit Environmental Review

1. Introduction

   The Ninth Circuit's decision in California v. FERC (Dynamo Pond),(1) is representative of the continuing conflicts between the Federal Energy Regulatory Commission (FERC) and state and federal natural resource agencies within the hydroelectric licensing process.(2) Hydroelectric licensing has been, for all practical purposes, FERC's exclusive domain. However, environmental legislation enacted over the past three decades has attempted to alter the balance of power to insure that environmental concerns are addressed during the licensing process. The litigation surrounding Henwood Associates' application for a minor hydroelectric license at Dynamo Pond on Green Creek in Mono County California exemplifies the power struggles between FERC, acting under the Federal Power Act (FPA), and resource agencies, acting under independent statutory authority.

   Section II of this Chapter briefly reviews the historical context of the power struggles in hydroelectric licensing. Section III describes Henwood's application for, and ensuing litigation over, a license for a proposed hydroelectric project at Dynamo Pond. Section IV addresses the consultation and negotiation procedures of section 10(j) of the FPA, and the conflict engendered between FERC, the California Department of Fish and Game (Cal Fish), and Henwood during the negotiations. Section V analyzes the California State Water Resources Control Board (Cal Water) challenge to FERC's application of new regulations under the waiver provision of section 401 of the Clean Water Act(3) in which Cal Water argued that FERC improperly applied its 1987 rule regarding CWA certification waivers. Section VI examines Henwood's challenge to FERC's sudden reversal of its longstanding policy rejecting Bureau of Land Management (BLM) authority under the Federal Land Policy Management Act (FLPMA)(4) to require rights of way for FERC-licensed projects. In a short-lived stroke of judicial activism, the Ninth Circuit reversed FERC, but was itself trumped by the 1992 Energy Policy amendments(5) which codified the BLM's right-of-way authority over BLM lands. Finally, Section VII concludes that congressional attempts to infuse the hydroelectric licensing process with environmental sensitivity have largely failed, and FERC, which has traditionally subordinated environmental concerns to power production, has retained almost complete control over hydroelectric licenses.

2. Background

   The predecessor of the FPA, the Federal Water Power Act of 1920, consolidated the authority of three federal government agencies over hydroelectric licensing into a newly created Federal Power Commission (FPC).(6) One goal of the consolidation was to ensure that a "common policy" would facilitate a "national program of intelligent, economical utilization of [the nation's] power resources."(7) The consolidation of authority in the FPC has influenced court decisions in the resolution of power conflicts between states and FERC, and between federal agencies and FERC. For example, in First Iowa Hydroelectric Cooperative v. Federal Power Commission," the U.S. Supreme Court rejected the State of Iowa's challenge that the FPC must comply with state permit requirements prior to licensing a federal hydroelectric project.(9) Similarly, the Supreme Court rejected state authority to condition the instream flow rates of federal hydroelectric projects in California v. FERC (Rock Creek)."o

   The first case to indicate that FERC must acknowledge the expertise of other federal agencies during the hydroelectric licensing process was Udall v. Federal Power Commission."(11) In Udall, the U.S. Supreme Court upheld the Secretary of Interior's argument that he be allowed to protect the Northwest anadromous fisheries.(12) The Court cited section 10(a) of the FPA, which requires that hydroelectric projects be "best adapted" to "developing a waterway . . . and . . . other beneficial public uses, including recreational purposes."(13) The Court held that the FPC must consider the alternative of not developing a project if it threatens to render extinct a recreational resource such as anadromous fish.(14)

   Federal environmental legislation since the 1960s has enhanced the role of natural resource agencies in the hydroelectric licensing process. For example, prior to licensing a hydroelectric project, FERC must comply with the procedural requirements of the National Environmental Policy Act (NEPA),(15) the consultation requirements of the Fish and Wildlife Coordination Act (FWCA),(16) and water quality requirements under the Clean Water Act (CWA).(17) Moreover, the Electric Consumer Protection Act of 1986 (ECPA)"(18) requires FERC to consult with state and federal fish and wildlife agencies, and negotiate conflicts with those agencies' recommendations.(19) In October 1992, Congress enacted the Energy Policy Act, which amended FLPMA's definition of "public lands" clarifying the BLM's authority to require rights of way for hydroelectric projects on BLM lands.(20) The Energy Policy Act also altered FERC's definition of "fishway," expanding the authority of state and federal fish and wildlife agencies to prescribe conditions for fish passage.(21)

3. The Dynamo Pond Project

   Henwood Associates contemplated constructing a small hydroelectric project on Green Creek in Mono County, California. The project and corresponding facilities would occupy 8.4 acres of BLM land.(22) The Dynamo Pond Project was designed to operate in a run-of-the-river mode(23) and to help offset the California-Southern Nevada region's projected need for power.(24) In December 1985, Henwood requested that Cal Water certify, under section 401 of the Clean Water Act,(25) that the project would not impair the creek's water quality.(26) Henwood also consulted with state and federal resource agencies in compliance with section 10(j) of the FPA.(27) Before receiving the section 401 certification, Henwood filed a license application with FERC under subchapter I of the FPA.(28)

   In December 1987, FERC issued Henwood's license and published an environmental assessment (EA) on the project, concluding that its construction and operation would produce no significant environmental impacts.(29) The EA stated that Cal Water had waived section 401 certification because more than a year had passed since Henwood's initial request for certification.(30) The EA detailed conflicting instream flow recommendations for the by-pass reach; Cal Fish recommended that nine to fifteen cubic feet per second (cfs) of water be diverted around the dam to protect fish passage while Henwood suggested that five cfs would be sufficient. FERC found that Henwood's recommendation was sufficient to mitigate the adverse impact the development would have on Green Creek's water and fishery resource.(31)

   Cal Fish appealed the issuance of the license, but FERC issued an administrative order denying the appeal because the agency was not a party or an intervenor in the original license proceedings. FERC also rejected Cal Water's appeal of the waiver of water quality certification.(32)

   Pursuant to the terms of license, Henwood requested the BLM's comments on a draft erosion and sedimentation plan. In addition to commenting on the plan, the BLM informed Henwood that, under FLPMA,(33) Henwood must obtain a right-of-way before construction could occur on BLM administered lands.(34) Henwood filed a motion asking FERC to declare that the BLM had no authority to require a right-of-way. In response to Henwood's motion, FERC declared that the BLM did not have the authority to require Henwood to secure a right of way.(35) FERC also rejected the BLM's assertion that it could condition the minimum instream flows in the bypass reach.(36)

   In May 1989, FERC denied BLM's request for rescission of FERC's earlier finding on the right-of-way issue.(37) However, as a result of an intervening FERC order(38) which permitted fish and wildlife agencies to have limited interventions in licensing appeals, FERC granted Cal Fish party status and reopened negotiations regarding the minimum instream flows in the bypass reach under section 10(j) of the FPA. Henwood appealed this decision, and in February 1990, FEPC rejected Henwood's appeal and established a new minimum stream flow in the bypass reach of seven cfs.(39) In the same order, FERC abruptly reversed its earlier decision and held that the BLM had the authority to require rights-of-way across BLM land, but again denied Cal Water's request for rehearing.(40)

   In a final and unsuccessful appeal before FERC, Cal Fish argued that seven cfs was not adequate to protect Green Creek's fishery resource.(41) Cal Fish, Cal Water, and Henwood each appealed FERC's holdings to the Ninth Circuit.

4. Section 10(j) of the Federal Power Act

   Section 106) requires that every hydroelectric license issued by FERC include measures to "adequately and equitably protect, mitigate damages to, and enhance, fish and wildlife (including related spawning grounds and habitat) affected by the development, operation, and management" of hydroelectric projects.(42) Section 10(j) further requires consultation with state and federal fish and wildlife agencies during the license application process.(43) If FERC finds that fish and wildlife agency recommendations made during the section 100)(1) consultation process are inconsistent with the FPA or other law, section 100)(2) triggers negotiations between FERC and that agency.(44) Section 10(j)(2) requires that FERC attempt to resolve any such inconsistency prior...